72 Alaska Business Monthly | May 2015 www.akbizmag.com
Shell Gets Ready to Drill
Moving forward for return to Chukchi Sea
By Mike Bradner
Shell has its hopes up, once again, to make good on the company’s $6 billion bet on Arctic offshore oil.
The major regulatory approvals seem to
be falling in place. At the end of March
the US Bureau of Ocean Energy Management (BOEM) issued a Record of
Decision closing a loophole on a legal
dispute on the 2008 Chukchi Sea lease
sale, the one where Shell paid over $2
billion for federal Outer Continental
That action freed the agency to begin
processing Shell’s applications for drilling permits for the 2015 Arctic summer
open-water season. Encouraged, the
company began mobilizing vessels for
its summer drill fleet including bringing the Polar Pioneer, a semi-submers-ible drill rig, from Southeast Asia to the
Shell’s plan is to use two drill ships
this summer in the Chukchi Sea, the
Polar Pioneer and the drillship Noble
Discoverer, which was used in 2012
drilling in the Arctic and has since been
refitted to resolve problems that arose
Meanwhile, Shell has submitted a revised
exploration plan that would replace one
submitted earlier. BOEM will not release
details of the plan until it is reviewed,
however. Meanwhile, the federal courts
had given the agency authority to review
the previous plan informally.
Shell is hoping for “conditional approval” of its plan by the end of April,
but BOEM would still need to do an environmental analysis of the plan, which
may spark more protests from environmental groups.
Meanwhile, the US Bureau of Safety
and Environmental Enforcement, a sis-
ter agency to BOEM within the Depart-
ment of the Interior, is still working on
finalizing new special drilling rules for
the Arctic, but Shell need not wait until
these are issued, Bureau of Safety and
Environmental Enforcement officials
Most provisions in the new rules have
already been agreed to by Shell and
would be incorporated into permits.
Shell has been stymied for years in its
efforts to explore its leases in the Alaska
Chukchi Sea as well the Beaufort Sea.
There are now hopes the stars have finally aligned.
The company was able to partly drill
two exploration wells in 2012, one in
the Beaufort Sea and one in the Chukchi Sea. The wells were “top holes,”
or the upper parts of the wells that
stopped short of penetrating potential
oil-bearing reservoir rock.
Drilling stopped at a certain level
above where the oil was thought to be
because Shell was unable to complete
and gain federal approvals for a special
oil spill containment barge it had built.
Without the barge positioned nearby,
the federal agency involved, the US
Bureau of Safety and Environmental
Enforcement, could not allow Shell to
drill deeper. If a Gulf of Mexico-type
oil blowout were to occur Shell would
be extremely limited in its ability to respond without the barge.
Shell plans to return to the Chukchi
Sea and complete drilling on the 2012
well and to drill additional wells, but
for now the Beaufort Sea is on the back
burner, the company has said. Of the
two regions, the Chukchi Sea has the
greater potential for large discoveries,
government geologists have said, and it
has become the company’s top priority.
The immediate prospect for 2015 is
at the location of the 2012 well and it is
Shell’s “Burger” prospect, a discovery
the company ironically drilled in 1991
in an early round of Chukchi Sea drill-
ing. Shell found a large gas deposit and
indications of oil, but at the time the
discovery was uneconomic because of
its remote location sixty miles offshore
and the fact that there were no immedi-
ate plans for a natural gas pipeline from
the North Slope.
That has changed now with the active
work being done on the large Alaska
LNG Project, a gas pipeline from the
North Slope to southern Alaska and a
liquefied natural gas plant. Another
change is that Shell has had a chance,
in the years since 1991, to reassess its
global exploration strategy and to place
a new emphasis on the Arctic offshore.
In addition, the company now has new
tools, such as advanced 3D seismic im-
aging, that weren’t available in 1991.
That has enabled Shell to get a much
clearer picture of the potential of the
Burger prospect and the Chukchi Sea.
In any event, Shell relinquished its
Chukchi Sea leases back to the federal
government in the 1990s and then had
to come back and bid again for them
in the government’s 2008 Chukchi Sea
lease sale. By then Shell was anxious,
with the information it had, to regain
control of Burger. The company invested more than $2 billion in bonus bids
for leases it had given up in the 1990s.
Leases had meanwhile been acquired
earlier in the Beaufort Sea in federal
lease sales in 2005 and 2007.
Completion of BOEM’s Record of Decision process will allow the agency to
begin processing applications by Shell
for permits to drill on its leases in the